To contribute or sell property to one company from another.

Technical topics regarding tax preparation.
#1
Posts:
62
Joined:
27-May-2021 12:40pm
Location:
USA
I have a client that owns 2 companies (Company A and Company B).

He received 3 AC units in lieu of compensation for consulting services under Company A (valued at $30,000).

He wants to install those 3 units at Company B.

He thinks he should sell the units from Company A to Company B. I think he should just contribute them as property (idk if sales tax would be an issue if he were to sell them).

Questions: - What's the proper way to go about this? He was also concerned about "getting his money back" from the initial consulting transaction. I think contributing to Co B and taking a distribution of cash of $30K is just fine.


- For the Co A consulting transaction, is the JE as simple as:
AC Unit $30,000
​​​​​​​       Consulting Income $30,000
 

#2
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
What type of entities are Company A and B?

taxaflaxa wrote:- For the Co A consulting transaction, is the JE as simple as:
AC Unit $30,000
​​​​​​​       Consulting Income $30,000


Yes
 

#3
Nilodop  
Posts:
18759
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
Your last question is easy. Yes.

Your first question can't be answered until you tell us:
What are Co A and Co B? SMLLC, default treatment?
SMLLC, S corp treatment?
Actual S corp.?
Tax basis in S corp.?
C corp? If so, any E&P, current or accumulated?
If S corp., any E&P, current or accumulated?
MMllC, partnership treatment (e.g., with spouse.
Does he own both directly (sister/brother) or are they parent/sub?
Deprec. a toss-up, or are there factors to consider before deciding?
Sales tax s/b easy to check. "Might" need t know what state(s).
There may be more questions.
 

#4
Posts:
62
Joined:
27-May-2021 12:40pm
Location:
USA
sjrcpa wrote:What type of entities are Company A and B?

taxaflaxa wrote:- For the Co A consulting transaction, is the JE as simple as:
AC Unit $30,000
​​​​​​​       Consulting Income $30,000


Yes


A is an S Corp. B is a partnership.
 

#5
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
So how would you propose S Corporation A contribute property to Partnership B?

How does your client own A and B? A Partnership needs 2 or more owners.
 

#6
Posts:
62
Joined:
27-May-2021 12:40pm
Location:
USA
sjrcpa wrote:So how would you propose S Corporation A contribute property to Partnership B?

How does your client own A and B? A Partnership needs 2 or more owners.


I would think it could be a distribution to the owner from the S Corp (he and his wife are owners in the S Corp).

Then a contribution of property from himself (50% partner) into company B.
 

#7
Posts:
62
Joined:
27-May-2021 12:40pm
Location:
USA
Nilodop wrote:Your last question is easy. Yes.

Your first question can't be answered until you tell us:
What are Co A and Co B? SMLLC, default treatment?
SMLLC, S corp treatment?
Actual S corp.?
Tax basis in S corp.?
C corp? If so, any E&P, current or accumulated?
If S corp., any E&P, current or accumulated?
MMllC, partnership treatment (e.g., with spouse.
Does he own both directly (sister/brother) or are they parent/sub?
Deprec. a toss-up, or are there factors to consider before deciding?
Sales tax s/b easy to check. "Might" need t know what state(s).
There may be more questions.


Co A is an S Corp (owned 50/50 with client and spouse)

Co B is MMLLC --> 50/50 with another partner.

Can you elaborate on S Corp treatment, default treatment, etc? Is this alluding to keep distributions even for all shareholders if an SCorp?

Thanks!
 

#8
MilesR  
Posts:
726
Joined:
7-Dec-2021 11:10pm
Location:
California
I don't see an issue having the S corp distribute the AC units to the husband (and wife) and then contribute it to the partnership.
If anyone is concerned with equal distributions just report proportional distributions to spouses and then basically the wife "gifts" him the AC unit and then he contributes it all to partnership.

There might be some "disguised sale" stuff with contributing to the partnership and then immediately taking cash out. But since it is not appreciated and doesn't really have any built-in gain, I don't think that's really something to be concerned with.
 

#9
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
MilesR wrote:I don't see an issue having the S corp distribute the AC units to the husband (and wife) and then contribute it to the partnership.

Neither do I.
But OP phrased it as contribution from Company A to Company B.
 


Return to Taxation



Who is online

Users browsing this forum: 808CPA808, Google [Bot] and 95 guests